Service charges to recover court costs

The Commonhold and Leasehold Reform Act 2002 provides that one party to proceedings in the First-tier Tribunal (Property Chamber) (formerly the Leasehold Valuation Tribunal) only has to pay the costs of the other party where the application was in some way an abuse of process, for example it was frivolous or vexatious.[1]

This does not rule out the requirement to pay the other party's costs where the lease specifically allows for this. However, the Tribunal has the power to determine whether some or all of the costs, that might otherwise be recoverable under the terms of the lease, should be disregarded.[2]

There is often a clause in the lease that allows landlords to pass on the costs of court proceedings to tenants through service charges. It is likely that whether the landlord can recover the cost of court proceedings through service charge will depend on the exact wording of the lease agreement.

The Upper Tribunal has held that although such a clause need not specifically mention the recovery of legal costs, it can only be given that meaning where it is clear and unambiguous.

The Tribunal considered that a clause stating that 'all other expenses (if any) incurred by the Lessors....(in) the maintenance and proper and convenient management and running of the Development' was not sufficiently clear to allow the freeholder to recover the costs of bringing proceedings to enforce the obligations of an individual leaseholder. It did allow that the term 'management' could include the costs of getting legal advice and in some circumstances the costs of litigation.[3]

In another case, the Court of Appeal held that the costs of tribunal proceedings associated with serving a notice of forfeiture could be recovered from the long leaseholder as service charges, because the wording of the clause in the lease was broad enough to cover these circumstances.[4]

Application to exclude landlord's costs

A tenant who has successfully applied to the County Court or First-tier Tribunal (Property Chamber) to exclude the costs incurred by a landlord in the First-tier or Upper Tribunal from service charges can ask the court or tribunal to consider whether it is unfair for them to meet the landlord's costs. [5] This is especially likely to be the case when these costs are recoverable through insurance.

In one case, the Upper Tribunal (Lands Chamber) held that an application to limit the service charges for court or tribunal proceedings included an application to determine whether there was any contractual power to claim these costs from the tenant. It made an order preventing the landlord from recovering costs through any future service charge demands.[6]

In another case, the Upper Tribunal held that the jurisdiction to make an order restricting the costs that the freeholder could recover through service charges only extended to those tenants who had made an application for limitation, or had been named in someone else's application. Tenants who had not made or been named in an application could not benefit from any restriction of the landlord's costs made by the Tribunal.[7]

Costs of enforcing terms of lease

It is common for a lease to include a clause that allows a landlord to recover costs in connection with the enforcement of its terms. One option is for a leaseholder to pay a disputed service charge and then challenge the validity of the amount charged in the First-tier Tribunal (Property Chamber).[8]

Joint applications

It may not be necessary for all leaseholders to apply jointly at the same time, although a joint application is possible.[9] In one case, it was held that the Tribunal did not have the jurisdiction to make an order to reduce the recoverable cost of proceedings in favour of all leaseholders unless either all leaseholders had applied for it, or had given their authority or consent to be represented. However, the fact that the remaining leaseholders were not party to the proceedings at the time, would not prevent them from making their own applications in the future.[10]

Generally, a dispute about service charges will involve many tenants, and they could consider pooling resources and instructing a common solicitor to act for them all. Some solicitors specialise in acting for groups of tenants in such disputes. There are also surveyors willing to take on cases, and as these are usually before the First-tier Tribunal (Property Chamber), they are permitted to do so.

The Leasehold Advisory Service (LEASE) can advise both tenants and landlords of their rights and obligations.